We kicked off the day with Producer Price Index (PPI) and Wholesale Trade at 7:30 A.M. Central, EIA Energy Stocks at 9:30 A.M. and Dairy Product Sales at 2:00 P.M. On the Corn front President Trump and Chinese President Xi Jinping discussed ongoing trade issues on Tuesday, as both sides stand their ground on tariffs. The two leaders spoke after high level talks failed to break any ground last week. I am sure we will reach a consensus as we both need each other being the largest economies in the world. Corn plantings have been moving at a rapid pace, although today’s rains should slow the farmer’s momentum. In the overnight electronic session the July Corn is currently trading at 402 ¼ which is 1 cent lower. The trading range has been 404 ¼ to 402 ¼.
On the Ethanol front the White House was busy yesterday with talks with the Chinese President on tariffs effecting Grains and Ethanol imports, the exit of the nuke deal and President Trump had a close door briefing with the two Iowa senators supporting the Corn Lobby and senators from Pennsylvania and Texas concerned about refineries going bankrupt. They are attempting to set a stage where all arguments can be heard and come up with a viable solution. In the overnight electronic session the June Ethanol is currently trading at 1.470 which is .004 lower. The trading range has been 1.474 to 1.470. The market is currently showing 3 bids @ 1.469 and 1 offer @ 1.470. 9 contracts traded and Open Interest is at 1,074 contracts.
On the Crude Oil front the volatility in yesterday’s trading session with the fake news courtesy of the usual suspects drove the market down and the buy rumor sell fact is easier said than done. Although it turned out to be a golden buys the algorithms stepped on the market through support but the market quickly recovered. Last night’s API showed draws in Crude stocks of 1.85 million barrels, Gasoline draws of 2.055 million barrels, Distillates down a whopping 6.674 million barrels while Cushing showed builds of 1.653 million barrels. Also the exodus of the Iran Nuke Deal which was a bad deal and sanctions are another ingredient to propel this market to the next higher level. In the overnight electronic session the June Crude Oil is currently trading at 7077 which is 171 points higher. The trading range has been 7117 to 6985.
On the Natural Gas front the market just seems to continue to tread water on bearish news. In the overnight electronic session the June contract is currently trading at 2.747 which is 1 ½ of a cent higher. The trading range has been 2.759 to 2.733.
— Daniel Flynn
The Energy Report: Going nuclear
Oil prices are going nuclear as President Donald Trump pulled out of the Iranian nuclear accord creating a new risk dynamic for global oil markets. The decision by president Trump to pull the plug on what he said was a horrible deal comes as global oil demand is rising and the lack of investment in the oil patch is making it difficult for global oil production to keep pace with demand. Even the fact that the Energy Information Administration raised its 2018 crude oil production estimate to a record 10.72 million barrels a day this year and another record projection of 11.86 million barrels a day next year, it was not enough to calm the market as the super cycle in oil, that we predicted a few years back, is becoming more apparent to the market place.
The deal means shale oil producers will win, as well as U.S. Energy Companies, if they did not commit a lot of money to Iran. Even the commitment by Saudi Arabia to help stabilize global oil was not comforting, considering that the Saudis want $80 a barrel oil anyway. The UAE also vowed to step in if needed but the reality is that even with the oil coming out of Iran the global oil market is currently undersupplied as it is.
The Saudis also of course are forced to shoot down missiles fired from Iranian backed Houthi Iranian rebels. That happened again overnight as the Trump Administration laid out more Irianian misdeeds as its reason for pulling out of the deal, such as The support for the Assad regime in Syria and its complicity in Assad’s atrocities against the Syrian people. In Yemen, the regime has escalated the conflict and used the Houthis as a proxy to attack other nations. In Iraq, Iran’s IRGC sponsors Shia militant groups and terrorists. In Lebanon, the Iranian regime enables Hezbollah to play a highly destabilizing role and to build an arsenal of weapons that threatens the region, according to the White House.
The Wall Street Journal reports that Iran has recently been exporting 2.7 million barrels a day of crude, or close to 3% of global supplies. That supply will dwindle away and with demand growth it will keep prices on an upward track.
You see, even staying blindly in this Iranian deal the market was tightening anyway. The report from the American Petroleum Institute (API) is showing us just how much and is another reason oil is making more multi year highs overnight. The API reported a very disturbingly bullish picture for U.S. oil supply. The API reported not only a 1.85-million-barrel drop in crude oil supply, but a massive 6.674-million-barrel drop in distillate supply. That puts distillate stocks well below the five-year average and are dangerously low. Gasoline supply also fell by a sizable 2.055 million barrels leaving prices at the pump susceptible to even more price increases. As we have warned before, product prices are susceptible for upward price spikes so make sure you are hedged.
Now for some breaking news on oil. Sources are reporting that the U.S. government has authorized a study to perhaps lay the groundwork to get rid of the U.S. Strategic Petroleum Reserve. The SPR that was put in place as a response to the Arab oil embargo in the seventies is now being viewed as a relic of another era or a pre-shale oil era. Remember you heard it here first as well as on the Fox Business Network.
Other bull markets to note. Lumber prices continue to record highs as a tight housing market and logistical issues are driving prices. A strong economy and a strong housing sector, not to mention trade issues with Canada, is keeping that market rocking. Milk also looks like it is continuing its major bottom as the market is tightening after the loss of many dairy farms in recent years. Maybe a super cycle in milk is developing?
— Phil Flynn
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